Inclusion Riders in Business: Diversity in the Boardroom

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Inclusion Riders in Business: Diversity in the Boardroom

Inclusion Riders in Business: Diversity in the Boardroom

Few people outside of the entertainment industry had heard the term “Inclusion Rider” before the Oscars – after Frances McDormand’s Oscar winning speech, it was the buzz word of the media – but does it apply outside of the film industry?

The term inclusion rider was coined by Stacy Smith of the Annenburg Inclusion Initiative which studies diversity and inclusion in the entertainment field. To paraphrase, it suggests films should reflect the world we actually live in and not just a small proportion of the talent pool.

Diversity in the business world has been discussed well before the 2018 Oscar ceremony raised its profile. For public companies various reviews and reports have recommended their own version of ‘inclusion riders’ to the board profile. The Davies Report of 2011 set a target to FTSE 350 boards of 25% female representation by 2015, the Hampton-Alexander Review of 2017 set a new target of 33% of women on FTSE 350 boards by 2020, with FTSE 100 companies aiming for one third women’s representation at executive level. The Parker Review, published in 2017, considered ethnic and cultural diversity on boards, suggesting they should better reflect their company’s employee base and the communities they serve. It also proposed that each FTSE 100 company have one director from an ethnic minority background by 2021 and by 2024 for FTSE 250 companies. The proposed revisions to the UK Corporate Governance Code pick up on all of these reviews and recommendations.

Diversity in the boardroom is about more than gender and ethnic background though. It also encompasses education, experience, personal strengths and attributes. A board should also not just reflect a small proportion of the talent pool available to it. Properly constituted, each director on the board – whether executive or non-executive - makes a contribution to the collective decision making process based on their individual attributes. Board effectiveness can only improve by having a diverse mix of talent and abilities available to it, removing further the danger of “group think” that many boards still have.

The headline target recommendations are aimed at public companies and larger private companies, however, the strategic benefit diversity brings should see many small or medium sized companies also embracing the philosophy. The ownership, management and employees of local companies often reflect the community around them far better than those of a larger national company. The addition of a more diverse management structure however, could then give that company the opportunity to grow whilst retaining the local feel provided by the board’s background.

There could also be financial benefits to embracing diversity. Investors are often the leaders of trends and many companies improved their environmentally friendly credentials when investment companies pushed a ‘green’ agenda onto their investment criteria. The entertainment industry is hoping that the ‘inclusion rider’ will be a necessary provision to secure funding in the future and it is increasingly probable that a good board diversity policy will soon be on the agenda for lenders and investors, whatever the company size.

For further information on inclusion riders and how our Company Secretarial team can help you, please contact Emma Bulleyment or you can give us a call on 0345 070 6000.